Lazard’s Levelized Cost of Energy Analysis—Version 12

[Pages:20]NOVEMBER 2018

LAZARD'S LEVELIZED COST OF ENERGY ANALYSIS--VERSION 12.0

LAZARD'S LEVELIZED COST OF ENERGY ANALYSIS--VERSION 12.0

Introduction

Lazard's Levelized Cost of Energy ("LCOE") analysis addresses the following topics:

Comparative LCOE analysis for various generation technologies on a $/MWh basis, including sensitivities, as relevant, for U.S. federal tax subsidies, fuel prices and costs of capital

Illustration of how the LCOE of wind and utility-scale solar compare to the marginal cost of selected conventional generation technologies

Historical LCOE comparison of various utility-scale generation technologies

Illustration of the historical LCOE declines for wind and utility-scale solar technologies

Illustration of how the LCOE of utility-scale solar compares to the LCOE of gas peaking and how the LCOE of wind compares to the LCOE of gas combined cycle generation

Comparison of assumed capital costs on a $/kW basis for various generation technologies

Decomposition of the LCOE for various generation technologies by capital cost, fixed operations and maintenance expense, variable operations and maintenance expense and fuel cost, as relevant

A methodological overview of Lazard's approach to our LCOE analysis

Considerations regarding the usage characteristics and applicability of various generation technologies

An illustrative comparison of the cost of carbon abatement of various Alternative Energy technologies relative to conventional generation

Summary assumptions for Lazard's LCOE analysis

Summary of Lazard's approach to comparing the LCOE for various conventional and Alternative Energy generation technologies

Other factors would also have a potentially significant effect on the results contained herein, but have not been examined in the scope of this analysis. These additional factors, among others, could include: import tariffs; capacity value vs. energy value; stranded costs related to distributed generation or otherwise; network upgrade, transmission, congestion or other integration-related costs; significant permitting or other development costs, unless otherwise noted; and costs of complying with various environmental regulations (e.g., carbon emissions offsets or emissions control systems). This analysis also does not address potential social and environmental externalities, including, for example, the social costs and rate consequences for those who cannot afford distributed generation solutions, as well as the long-term residual and societal consequences of various conventional generation technologies that are difficult to measure (e.g., nuclear waste disposal, airborne pollutants, greenhouse gases, etc.)

Copyright 2018 Lazard

1

This study has been prepared by Lazard for general informational purposes only, and it is not intended to be, and should not be construed as, financial or other advice. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of Lazard.

LAZARD'S LEVELIZED COST OF ENERGY ANALYSIS--VERSION 12.0

Levelized Cost of Energy Comparison--Unsubsidized Analysis

Certain Alternative Energy generation technologies are cost-competitive with conventional generation technologies under certain circumstaxnces(1)

Solar PV--Rooftop Residential

$160

$267

Solar PV--Rooftop C&I

$81

$170

Solar PV--Community Solar PV--Crystalline Utility Scale (2) Alternative Energy Solar PV--Thin Film Utility Scale (2)

$73

$40 $46

$36

$44

$145

Solar Thermal Tower with Storage

$98

$181

Fuel Cell

$103

$152

Geothermal

$71

$111

Conve ntional

Wind Gas Peaking

Nuclear (4) Coal (6)

$29

$56

$28(5)

$36(5)

$60

$92 (3) $112

$152 $143

$206 $189

Gas Combined Cycle

$41

$74

x

Copyright 2018 Lazard

$0

$50

$100

$150

$200

$250

$300

$350

Source: Note: (1)

(2) (3) (4) (5)

(6)

Levelized Cost ($/MWh)

Lazard estimates.

Here and throughout this presentation, unless otherwise indicated, the analysis assumes 60% debt at 8% interest rate and 40% equity at 12% cost. Please see page titled "Levelized Cost of Energy Comparison--Sensitivity to

Cost of Capital" for cost of capital sensitivities.

Such observation does not take into account other factors that would also have a potentially significant effect on the results contained herein, but have not been examined in the scope of this analysis. These additional factors,

among others, could include: import tariffs; capacity value vs. energy value; stranded costs related to distributed generation or otherwise; network upgrade, transmission, congestion or other integration-related costs; significant

permitting or other development costs, unless otherwise noted; and costs of complying with various environmental regulations (e.g., carbon emissions offsets or emissions control systems). This analysis also does not address

potential social and environmental externalities, including, for example, the social costs and rate consequences for those who cannot afford distribution generation solutions, as well as the long-term residual and societal

consequences of various conventional generation technologies that are difficult to measure (e.g., nuclear waste disposal, airborne pollutants, greenhouse gases, etc.).

Unless otherwise indicated herein, the low end represents a single-axis tracking system and the high end represents a fixed-tilt design.

Represents the estimated implied midpoint of the LCOE of offshore wind, assuming a capital cost range of approximately $2.25 ? $3.80 per watt.

Unless otherwise indicated, the analysis herein does not reflect decommissioning costs or the potential economic impacts of federal loan guarantees or other subsidies.

Represents the midpoint of the marginal cost of operating fully depreciated coal and nuclear facilities, inclusive of decommissioning costs for nuclear facilities. Analysis assumes that the salvage value for a decommissioned coal

plant is equivalent to the decommissioning and site restoration costs. Inputs are derived from a benchmark of operating, fully depreciated coal and nuclear assets across the U.S. Capacity factors, fuel, variable and fixed operating

expenses are based on upper and lower quartile estimates derived from Lazard's research. Please see page titled "Levelized Cost of Energy Comparison--Alternative Energy versus Marginal Cost of Selected Existing

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Conventional Generation" for additional details.

Unless otherwise indicated, the analysis herein reflects average of Northern Appalachian Upper Ohio River Barge and Pittsburgh Seam Rail coal. High end incorporates 90% carbon capture and compression. Does not include

cost of transportation and storage.

This study has been prepared by Lazard for general informational purposes only, and it is not intended to be, and should not be construed as, financial or

other advice. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of Lazard.

LAZARD'S LEVELIZED COST OF ENERGY ANALYSIS--VERSION 12.0

Levelized Cost of Energy Comparison--Sensitivity to U.S. Federal Tax Subsidies(1)

Given the extension of the Investment Tax Credit ("ITC") and Production Tax Credit ("PTC") in December 2015 and resulting subsidy visibility, U.S. federal tax subsidies remain an important component of the economics of Alternative Energy generation technologies

Solar PV--Rooftop Residential

Solar PV--Rooftop C&I

Solar PV--Community

Solar PV--Crystalline Utility Scale Solar PV--Thin Film Utility Scale

Solar Thermal Tower with Storage Fuel Cell (2)

$40 $37 $36 $32

Geothermal

Wind

$29

$14

$0

$81

$74

$73

$70

$46

$44

$44

$41

$98

$96

$103

$97

$71

$67

$56

$47

$50

$100

$160 $146

$170 $156 $145 $139

$111 $110

$181 $169 $152 $140

$150

$200

$245

$267

$250

$300

$350

Copyright 2018 Lazard

Levelized Cost ($/MWh)

Source: Lazard estimates.

Unsubsidized

Subsidized

Note: The sensitivity analysis presented on this page also includes sensitivities related to the U.S. Tax Cuts and Jobs Act ("TCJA") of 2017. The TCJA contains several provisions that impact the

LCOE of various generation technologies (e.g., a reduced federal corporate income tax rate, an ability to elect immediate bonus depreciation, limitations on the deductibility of interest

expense and restrictions on the utilization of past net operating losses). On balance, the TCJA reduced the LCOE of conventional generation technologies and marginally increased the

LCOE for Alternative Energy technologies.

(1)

The sensitivity analysis presented on this page assumes that projects qualify for the full ITC/PTC and have a capital structure that includes sponsor equity, tax equity and debt.

3

(2)

The ITC for fuel cell technologies is capped at $1,500/0.5 kW of capacity.

This study has been prepared by Lazard for general informational purposes only, and it is not intended to be, and should not be construed as, financial or other advice. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of Lazard.

LAZARD'S LEVELIZED COST OF ENERGY ANALYSIS--VERSION 12.0

Levelized Cost of Energy Comparison--Sensitivity to Fuel Prices

Variations in fuel prices can materially affect the LCOE of conventional generation technologies, but direct comparisons against "competing" Alternative Energy generation technologies must take into account issues such as dispatch characteristics (e.g., baseload and/or dispatchable intermediate load vs. peaking or intermittent technologies)

x

x

Solar PV--Rooftop Residential

$160

$267

Solar PV--Rooftop C&I

$81

$170

Solar PV--Community

$73

$145

Alternative Energy

Solar PV--Crystalline Utility Scale Solar PV--Thin Film Utility Scale

Solar Thermal Tower with Storage Fuel Cell

Geothermal Wind

$40 $46

$36

$44

$98

$95

$71

$29

$56

$111

$181 $159

Conventional

x

Gas Peaking Nuclear Coal

Gas Combined Cycle $0

Copyright 2018 Lazard

Source: Lazard estimates.

$142

$214

$109

$191

$57

$148

$35 $50

$81 $100

$150

$200

Levelized Cost ($/MWh)

$250

$300

$350

Unsubsidized

? 25% Fuel Price Fluctuation

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This study has been prepared by Lazard for general informational purposes only, and it is not intended to be, and should not be construed as, financial or other advice. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of Lazard.

LAZARD'S LEVELIZED COST OF ENERGY ANALYSIS--VERSION 12.0

Levelized Cost of Energy Comparison--Sensitivity to Cost of Capital

A key consideration for utility-scale generation technologies is the impact of the availability and cost of capital(1) on LCOE values; availability and cost of capital have a particularly significant impact on Alternative Energy generation technologies, whose costs reflect essentially the return on, and of, the capital investment required to build them

Midpoint of Unsubsidized LCOE(2)

LCOE ($/MWh)

$250

Gas Peaker

Nuclear

200

$156 150

$118

100

$107

$83

$78

$53

50

$36

$34

0

After-Tax IRR/WACC 5.4%

Cost of Equity

9.0%

Cost of Debt

5.0%

$164

$128

$117 $89 $82 $55 $38 $37

6.2% 10.0% 6.0%

$171

$139 $128 $95

$86 $56 $40 $40

6.9% 11.0% 7.0%

$179

$151

$140 $102

$91 $58 $43 $42

7.7% 12.0% 8.0%

$187 $162 $152 $108

$96 $60 $46 $44

8.4% 13.0% 9.0%

$195 $173 $165

$115

$101 $62 $50 $46

9.2% 14.0% 10.0%

Solar Thermal Tower

Coal

Geothermal

Gas-- Combined

Cycle

Solar PV? Crystalline

Wind

Copyright 2018 Lazard

Source: Lazard estimates.

Note: Analysis assumes 60% debt and 40% equity.

(1)

Cost of capital as used herein indicates the cost of capital for the asset/plant and not the cost of capital of a particular investor/owner.

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(2)

Reflects the average of the high and low LCOE for each respective cost of capital assumption.

This study has been prepared by Lazard for general informational purposes only, and it is not intended to be, and should not be construed as, financial or other advice. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of Lazard.

LAZARD'S LEVELIZED COST OF ENERGY ANALYSIS--VERSION 12.0

Levelized Cost of Energy Comparison--Alternative Energy versus Marginal Cost of

Selected Existing Conventional Generation

Certain Alternative Energy generation technologies, which became cost-competitive with conventional generation technologies several years

ago, are, in some scenarios, approaching an LCOE that is at or below the marginal cost of existing conventional generation technologies

x

x

$75

Levelized Cost of New-Build Wind and Solar

Marginal Cost of Selected Existing Conventional Generation(1)

Cost of Energy ($/MWh)

60 $56

$47

45

$44

$45

$41

Unsubsidized Solar PV

30 $29

$36 $32

$31

Subsidized

Solar PV

Unsubsidized

$27

Wind

$24

15 $14

Subsidized Wind

0 Onshore Wind

Onshore Wind (Subsidized)(2)

Solar PV--Thin Film Utility Solar PV--Thin Film Utility

Scale

Scale (Subsidized)(2)

Coal

Nuclear

x

Copyright 2018 Lazard

Source: Lazard estimates.

(1)

Represents the marginal cost of operating, fully depreciated coal and nuclear facilities, inclusive of decommissioning costs for nuclear facilities. Analysis assumes that the salvage value for a

decommissioned coal plant is equivalent to the decommissioning and site restoration costs. Inputs are derived from a benchmark of operating, fully depreciated coal and nuclear assets

across the U.S. Capacity factors, fuel, variable and fixed operating expenses are based on upper and lower quartile estimates derived from Lazard's research.

6

(2)

The subsidized analysis includes sensitivities related to the TCJA and U.S. federal tax subsidies. Please see page titled "Levelized Cost of Energy Comparison--Sensitivity to U.S. Federal

Tax Subsidies" for additional details.

This study has been prepared by Lazard for general informational purposes only, and it is not intended to be, and should not be construed as, financial or other advice. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of Lazard.

LAZARD'S LEVELIZED COST OF ENERGY ANALYSIS--VERSION 12.0

Levelized Cost of Energy Comparison--Historical Utility-Scale Generation Comparison

Lazard's unsubsidized LCOE analysis indicates significant historical cost declines for utility-scale Alternative Energy generation technologies driven by, among other factors, decreasing supply chain costs, improving technologies and increased competition

Selected Historical Mean Unsubsidized LCOE Values(1)

Mean LCOE $/MWh

$380

$359

Gas Peaker (35%)

320

Nuclear

23%

260

$275

$248

Solar Thermal Tower (17%)

200 $168

140

$135

$123

$111

$83 80

$76

20 2009

$243

$157

$124 $111 $107 $96 $82

2010

$227

$159 $157 $111 $104 $95 $83 $71

2011

$216 $174

$125 $116 $102 $96 $75 $72

2012

$205

$145

$116 $105

$104 $98 $74 $70

2013

$205

$124 $116 $112 $109 $79 $74 $59

2014

$192 $150

$117 $108 $100 $64 $65 $55

2015

$191 $151

$117 $102 $98 $63 $55

$47

2016

$183 $148

$140 $102 $97

$60 $50

$45

2017

Coal (9%)

$179 $151

$140

$102 $91

$58 $43

$42 2018

Geothermal 21%

Gas--Combined Cycle (30%)

Solar PV-- Crystalline

(88%)

Wind (69%)

LCOE Version 3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

12.0

Copyright 2018 Lazard

Source: Lazard estimates.

(1)

Reflects the average of the high and low LCOE for each respective technology in each respective year. Percentages represent the total decrease in the average LCOE since Lazard's

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LCOE--Version 3.0.

This study has been prepared by Lazard for general informational purposes only, and it is not intended to be, and should not be construed as, financial or other advice. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of Lazard.

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